Asian Granito India (AGIL) is engaged in the manufacturing and sale of ceramic wall,
ceramic floor, vitrified tiles, digital polished glazed vitrified tiles, digital wall tiles, marble,
and quartz. The company offers more than 1,200 designs and export its products in
50+ countries. It has eight manufacturing facilities spread across Gujarat and the
current combined capacity is 100,000 sq. mtrs per day.
Focus on high value product: AGIL’s current, vitrified sales (35%) are lower as compared
to its peers like Somany Ceramics (47%) and Kajaria Ceramics (61%). Recently, AGIL
has launched various products in premium segments like Imperio, Jumbo – Double
Charge, CARARRA White, XXL – Polished Glazed Vitrified Tiles, Polished Vitrified Tiles
(Double Charge) etc. Going forward, we expect AGIL’s profit margin to improve due to
increase in focus for higher vitrified product sales, which is a high margin business.
Shift from B2B to B2C would improve the margin: AGIL is continuously putting efforts to
increase the B2C sales from the current level (35% in FY16). It is expected to reach up to
50% in next 2-3 years on the back of various initiatives taken by AGIL to increase direct
interaction with customers like strengthening distribution network, opening exclusive
brand showrooms, trade schemes on high value products, participation in key trade
exhibition, etc.
Strengthening distribution network: AGIL has an extensive marketing and distribution
network. It comprises of more than 4,500 dealers and sub-dealers (~27% grew over
last two years) and more than 80 exclusive dealer showrooms covering each and every
state of the country. This helps the company in promoting its range of products in the
market and hence is planning to open 200 more exclusive dealer showrooms. Going
forward, we expect the company to continue to expand its network through dealers &
sub-dealers. Also, the company is opening 16 large format exclusive corporate
display stores for dealers and architects.
Artistique Ceramic merger to boost margins: In July FY2016, AGIL acquired Artistique
Ceramic which has a better margin profile. Going forward, we expect the company to
improve its operating margin from 7.5% in FY16 (excluding merger) to 12-12.5% in
coming financial year. Artisique Ceramics has a contract with RAS GAS to supply quality
natural gas at a discounted rate of 50% to current market rate, which would reduce the
overall power & fuel cost of the company.
Outlook and Valuation: Considering the various initiatives taken by the
government like smart cities, housing for all by 2022, and push towards providing
sanitation, would create new demand avenues for entry level or lower priced tiles
(ceramic tiles). We expect AGIL to report a net revenue CAGR of ~11% to
~`1,220cr over FY2016-18E. On bottom-line front, we expect CAGR of ~39% to
`48cr over FY2016-18E owing to better product mix, higher B2C sales and
amalgamation synergy. We initiate coverage on the stock with a Buy
recommendation and target price of Rs351 (22x FY2018E EPS), indicating an upside
of ~27% from the current levels.

Download Full Report View Full Report in Browser